As a former European Automotive correspondent for Reuters, I’ve a spent a few years writing about the industry. I will penetrate the corporate hype and bluster and find out how these gigantic enterprises are really doing. I also love to drive their magnificent machines, and their more modest ones. I’ll be telling you if the technology works, too.

Financially troubled PeugeotPeugeot of France, Western Europe’s second-biggest car manufacturer in terms of sales, has based its recovery plan partly on the delusion that it can magically transform its vehicles into premium products commanding big profit margins, just like the Germans.

Peugeot and its Citroen brand sold 1.3 million cars in Western Europe last year for a market share of 11.1 per cent, second only to mighty Volkswagen of Germany’s 24.8 per cent, according to Automotive Industry Data.

But Peugeot has been shedding market share, and it has been losing money at an alarming rate of almost $10 billion between 2012 and 2013.

Yesterday, Peugeot’s new CEO Carlos Tavares, unveiled a long-awaited turnaround plan which he labelled “Back in the Race” which calls for a two per cent operating margin by 2018 rising to five per cent between 2019 and 2023. Tavares also targeted 2 billion euros ($2.8 billion) of operating cash flow in total between 2016 and 2018.

Peugeot 2008 DKR rally car

Earlier this year Peugeot unveiled a three way deal in which the French state and Dongfeng Motor of China each took 14 per cent stakes to rescue the company. Part of this deal forced the owning Peugeot family to see its stake diluted to 14 per cent from the previous 25.4 per cent, and the French media quickly dubbed this unwieldy structure the “three-headed monster” or the “lion with three heads.” The Peugeot corporate logo shows a lion, with one head.

Some critics said the Tavares plan was not only unambitious, but despite the small profit target, also might not be easy to reach because competitors, also no slouches when it comes to losing money, were desperately trying to recover too.

Bernstein Research analyst Max Warburton put it this way, although he did see the targets being met.

“The targets look very conservative and somewhat distant. Targeting two per cent margins in four years is a bit of a cold shower in an era when RenaultRenault (of France) has targeted five per cent, Ford Europe 5-6 per cent, VW six per cent and when Fiat (Fiat Chrysler Auto) is about to target the moon,” Warburton said.

“But we believe most will join us in concluding these targets are excessively conservative relative to peers – especially given Tavares’ previous claim that (Peugeot) was already profitable in Europe in the early months of 2014 and the growing evidence of a European volume recovery,” Warburton said.

Kristina Church, analyst with BarclaysBarclays Equity Research, thought that Peugeot might not even meet the easy targets, and cast doubts on the plan to move upmarket, which would mean engaging with the established German premium players like BMW, Mercedes and AudiAudi.

BMW’s 1 Series, the Mercedes A class and Audi A3 are examples of the German premium manufacturers, pressured by new fuel efficiency rules moving down market at the expense of the higher margin vehicles made by the mass car makers like Peugeot.

“We find it difficult to get excited, especially as these targets are clearly not overly ambitious. Beyond this, to reach their goals the road ahead will not be an easy one, particularly given the competition is fully geared up for the same race that (Peugeot) is competing in,” Church said.

“The plan to focus on differentiating brands has merit, but we question whether (Peugeot’s) strategy to expand their upmarket DS will succeed, particularly in an environment where premium players are launching smaller vehicles to help meet CO2 standards,” Church said.

Tavares said part of the plan involved paring down the model line-up by around half, and moving some of the remaining products upmarket using its “DS” brand to command higher prices and profit margins.

This easier-said-than-done strategy didn’t meet with much support either, and is a reminder of various failed and egocentric efforts in the past by mass car makers to mess with the premium companies.

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